RBI's MPC Faces Dilemma as Inflation Remains Within Target

The Reserve Bank of India's Monetary Policy Committee (MPC) is set to meet this week, and there are expectations that it will raise the policy rate despite retail price inflation being within its target. The RBI has not altered the repo rate since December 5, 2025, but other major central banks have recently hiked their rates.

Inflation in India is largely driven by food and oil prices, which are supply-side issues. However, experts believe that the MPC should base its policy rate decision on core inflation, excluding food and fuel inflation. The average core inflation stood at 3.9 per cent in the first five months of this financial year.

Raising rates will reduce demand in the economy, which witnessed a better-than-expected growth rate of 7.8 per cent in the first quarter of 2026-27. Some experts believe that controlling food inflation by moderating demand will prevent it from spreading to other areas, such as wages.